Austin Startups Attract $152 Million in Venture Capital During Second Quarter

Austin is still doing well when it comes to attracting venture capital investment into its technology startups.

During the second quarter, venture capitalists invested $152 million in 24 deals in Austin, according to the MoneyTree Report from PricewaterhouseCoopers LLP and the National Venture Capital Association, based on data provided by Thomson Reuters.

Deals and dollars were down 7 percent and 14 percent for the second quarter compared to the same quarter a year ago. But quarter venture capital investments increased 11 percent and deals remain about the same, compared to the first quarter of this year, according to the MoneyTree Report.

Information Technology services, software and biotechnology deals attracted the most investment dollars during the second quarter, according to the MoneyTree Report. And Spredfast, which received an investment of $50 million, the largest investment for the quarter, led IT services to overtake software as the largest investment sector.

Biotechnology investment attracted $34 million, going into Lumos Pharma, making it the second largest investment category, followed by software with $28 million going into seven deals.

Early stage investment in Austin is still going strong with $62 million going into 14 deals, according to the MoneyTree Report. That’s up 168 percent in dollars and eight percent in deals compared to the previous quarter.

“There are a number of markets that have dropped off comparatively where we haven’t,” said Larry Westall, partner with PricewaterhouseCoopers, based in Austin.

In the second quarter of this year, Colorado attracted $78 million in venture capital dollars, down from $319 million for the same quarter a year ago.

“Austin continues to attract money which is great for us,” Westall said.

Venture capitalists are not opening offices here but they still are getting on planes to make deals happen, Westall said.
“We would love to attract more VCs to the market,” he said.

Nationally, the amount of venture capital investments is up 20 percent to $15.3 billion in 961 deals, which is great, but the big news for this quarter, though, was skewed by one large deal, Westall said. Uber closed on $3.5 billion in funding in the second quarter, he said.

“If you look at the top ten deals – they are 40 percent of the total value invested for the quarter” he said. “We’re still seeing a lot of big transactions.”

Snapchat got $1.3 billion in venture capital during the second quarter of 2016.

Nationally, the investment dollars are still focused on software and biotech.

“All and all things were good, stable nationally,” Westall said. “Expectation is that the size of the VC investments will normalize over the year…Things still remain robust. Fundraising remains good.”

VCs invested 20 percent more in dollars during the second quarter nationally, compared to the first quarter, but deals dropped five percent. Compared with the same quarter a year ago, dollars and deals are down 12 percent and 22 percent respectively.

But this is the tenth consecutive quarter of more than $10 billion in venture capital invested.

And in the second quarter, companies had several exits with 12 initial public offerings and nine of those were biotech, Westall said. Right now, there are 40 known venture backed companies that have filed for an IPO, he said.

In Austin and nationally, the focus has shifted to reasonable spending and cost containment, Westall said.

“The idea of growth at any cost is not something you hear now. Make sure they have an eye on costs with a path to profitability,” he said.

And when deals do get done they generally involve multiple investors in the deal sharing the risk, Westall said.

San Antonio also had a big deal in the second quarter with Merge VR attracting $10 million in venture capital investment.
Westall expects to see more activity and collaboration between the two cities going forward.

“It’s going to take time but this shortening of the corridor between Austin and San Antonio is happening,” he said.